The health care industry provides medical treatment to the population at large. The insurance industry is in the business of sharing risk. Both of these industries are forced to work together when it comes to determining health care premiums for individual patients. Over the years, the health care industry has been able to provide better preventive care, as well as more sophisticated treatment, which all come at a cost and tends to increase health care premiums for individuals.
Kaiser Permanente is an example of merging a health care system and an insurance company into a single entity. Began in the 1940's, a premise of the merger of the health care system with the insurance company was that it would have an increased oversight capability, and thus be able to reduce cost. In order to do this, however, participants in the system were required to use physicians and services provided from within that system, thus reducing the choice that the consumer has to select his or her own physician.
At the other end of the spectrum is a system where the healthcare system and insurance company are entirely separate. The insurance company provides insurance to the customer, and the customer can then freely choose physicians, course of treatment and the like, and a fee for the service is paid by the insurance company to the provider. While such a system allows greater choice, it also results in greater costs.
Between the above two types of systems are health maintenance organizations (HMO's) and managed care organizations (MCO's) that have evolved. By allowing for member patients to choose from among a network of physicians, facilities, clinics and the like that make up the HMO or MCO, savings are incurred, which thereby lower the overall cost, with some of the savings being passed on to the member patients. In such systems, one of the manners of payment is based on “capitation,” in which the insurance company is paid a monthly fee by the patient or his employer, and the physician for that patient is paid some small percentage of that monthly fee. If the patient never receives any treatment, then the physician obtains a windfall, but if the patient requires more treatment than that covered by the monthly fee, the physician takes an effective loss. The net result is that there is an incentive for the physician to keep their own costs as low as possible; many times, it has been argued, to the detriment of the health of the patient.
In large part as a result of the capitation, what is known as “utilization review” has evolved, in which a particular formula is established to determine what care to provide in a specific case. Thus, for instance, even if a physician believes that a surgery is needed, utilization review may determine that a specific test with a particular result is needed in order to qualify for that surgery. As a result there is a negative means to keep costs down.
Point of service (POS) plans have also been developed with the intent to allow a greater freedom of choice of physicians and free access to that physician than are available in a capitation system. Typically more expensive than an HMO, a POS plan is intended to allow the patient to choose the physician of choice, and the insurance company agrees to pay some percentage, such as 80% of fees incurred, after some deductible. In practice, these plans typically do not reimburse the full percentage that was “agreed” to, in large measure due to “usual and customary” fees that the insurance company uses to determine the fees for procedures performed, which are typically less than the fees charged by the physician the patient chose. The net effect, therefore, is to incentivize the patient to use in-network physicians, which physicians the insurance company can then exert more control over in terms of their fees and costs, or cause the patient to bear more of the costs directly out of the patient's own pocket.
The accountable care organization (ACO) has recently been developed as a type of payment and delivery model that seeks to tie provider reimbursements to quality metrics and reductions in the total cost of care for an assigned population of patients. The ACO model builds on the Medicare Physician Group Practice Demonstration provided by the Centers for Medicare and Medicaid Services (CMS). An ACO generally comprises a group of healthcare providers that jointly held accountable for achieving measured quality improvements and reductions in the rate of spending growth. ACO's may involve a variety of provider configurations, from integrated delivery systems and primary care medical groups to hospitals.
A great deal of debate is generated regarding which type of plan provides the optimum balance between patient care and controlling of costs. In the meantime, attempts to contain costs continue to increase and systems have been developed to assist in containing costs. While capitation fees are one form of reimbursement, organizations have also provided incentives to groups of doctors. In one more recent form of incentive, if, based on all of their patients, the total fees and costs that have been incurred by the group are below the projected amount an incentive is paid. While such a system provides an incentive for the group to keep fees and costs low, such a system does not, on an episode of care basis for a particular patient, correlate the total cost of the services provided to a particular incentive. Accordingly, there is no direct correlation between the incentive and the specific care provided to a particular patient. Further, given the systems as described above, with an emphasis on lower costs, abuses unfortunately occur. As a result the health care system has become perceived as providing less than effective treatment to patients, with ever increasing costs that are in more and more instances passed on to the patient.